Equal Weight S&P500 Underperforms SPX by a Wide Margin

One of the more noteworthy developments Monday was the underperformance of the Equal Weighted S&P500 relative to the standard SPX. The SPXEW, in  which each of the 500 components has the same 0.2% weighting, only gained 0.47% vs. a 0.72% gain for the cap-weighted SPX. That’s a potentially negative sign for Tuesday’s session. Note from the long-term chart of the two indices that since the bottom in 2003, stocks have consistently performed well when the Equal Weighted S&P outperforms and stumbled when it underperforms. It’s therefore reasonable to conclude that an up day in the market with an undeperforming Equal Weighted index would be a short-term negative sign. A quick check of the historical data backs up this assumption. When both indices close higher on the day but the Equal Weight S&P underperforms the SPX by 0.25% or more, it’s been a negative sign for stocks the following session. The last 30 occurrences can  be found in the table below. While the S&P rallied the next day on the last two occurrences, you can see that’s the exception rather than the norm. 13 of the 15 prior occurrences led to a lower S&P close the following session, and in total the SPX closed lower the next day in 22 out of 30 occurrences since 2003. That 73% rate is significantly above the 45% random chance for a lower SPX one day later in the same time frame. Note that the S&P gained 1%+ the next day only twice, while it lost 1%+ fifteen times…

SPX Outperforms Equal Weight S&P by >0.25% on Up Day
10/18/10… SPX ??? next session
07/06/10… SPX +3.1% next session (*)
04/19/10… SPX +0.8% next session
11/18/08… SPX -6.1% next session
11/07/08… SPX -1.3% next session
10/28/08… SPX -1.1% next session
10/20/08… SPX -3.1% next session
10/16/08… SPX -0.6% next session
10/13/08… SPX -0.5% next session
09/30/08… SPX -0.5% next session
09/25/08… SPX +0.3% next session
09/19/08… SPX -3.8% next session
09/16/08… SPX -4.7% next session
08/20/08… SPX +0.3% next session
07/30/08… SPX -1.3% next session
07/10/08… SPX -1.1% next session
06/05/08… SPX -3.1% next session
01/24/08… SPX -1.6% next session
01/09/08… SPX +0.8% next session
11/20/07… SPX -1.6% next session
11/16/07… SPX -1.8% next session
08/06/07… SPX +0.6% next session
07/25/07… SPX -2.3% next session
07/23/07… SPX -2.0% next session
04/27/06… SPX +0.1% next session
03/16/04… SPX +1.2%  next session (*)
01/29/04… SPX -0.3% next session
01/26/04… SPX -1.0% next session
01/21/04… SPX -0.3% next session
12/04/03… SPX -0.8% next session
10/23/03… SPX -0.5% next session

Categories : Archived EOD Commentary, End-of-Day Commentary

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